mis 7th pdf

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Book: Essentials of Business Information Systems, 7E

Authors: Laudon & Laudon

Original Lecture Files by Barbara J. Ellestad

Topic: Business Information Systems

2.1 Introduction

Technology, to a large extent, has driven organizations to change the way they operateand that includes the way they manage. Were going to take an in-depth look at howorganizations work and how theyve been transformed by technology.

2.1.1 Business Objectives of Information Systems

Businesses dont spend millions of dollars each year on new technology just because itspopular. They do so out of necessity. Lets take a look at the six major reasons for suchmassive spending on information technology:

Achieve operational excellence through higher levels of efficiency, quality, andproductivity

Create new products, services, and business models Raise revenue and profits while lowering costs by increasing customer and

supplier intimacy Improve decision making for managers and employees Increase competitive advantages Insure survival caused by business environment changes

Business models continue to change as new technology is introduced. One of the bestexamples is how the music industrys business model has migrated from traditionaldistribution of records and CDs in brick-and-mortar stores to instant online downloads ofsingle songs. The industry didnt cause the change, consumers did. Other industries, suchas retailers and banks, have readily adapted their business models to take advantage ofnew information technologies because of the six reasons outlined above.

The common thread throughout all of these objectives is the effective use of databases tosupply useful information to employees, managers, and executives throughout the firm.As well see later in this chapter, each functional area of an organization is impacted byhow well the information system transforms data, or raw facts, into information that helpsachieve the business objectives.


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Bottom Line: Business models in thousands of industries throughout the world are

being transformed by technology. Technology helps businesses improve operations,

increase profits, reduce costs, improve decision making, increase competitive

advantages, and insure a businesss survival.

2.1.2 Perspectives on Information Systems and Information Technology

As information technology becomes the glue that holds a business together, itsimportant that you understand exactly what is involved.

Bottom Line: Information technology (IT) infrastructures include hardware,

software, data management, telecommunications, and networking technologies.

Data are simply raw facts. Information is the compilation of data into a useful form

that serves a purpose. As a successful manager you must concentrate on all three

parts of the information systems triangle (hardware, software, and persware) and

integrate them into a single, cohesive system that serves the needs of the

organization, the wants of the customer, and the desires of the employees.

2.1.3 Dimensions of Information Systems

As Figure 2-1 shows, there are three basic dimensions of information systems.

Organizations

Business organizations have their majorbusiness processes, which need many kinds ofplayers with various talents, who are well-trained and well-informed, in order to succeed.


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The larger the organization, the more formal the management structure, including theneed for standardized business processes. Formal business processes help managers andemployees properly complete their tasks in a more efficient manner. Many companiesnow integrate these business processes into their information systems to ensure

uniformity, consistency, and compliance.

People

A business organization requires different employees to help it succeed. Knowledgeworkers help create new knowledge for the organization and data workers help processthe paperwork necessary to keep an organization functioning. Without production orservice workers, how would the company get its products and services to the customer?

Every good organization needs good managers. Take professional football managers.They dont actually play the game,, they dont hit the home run, catch the fly ball for the

last out, or hang every decoration for the celebration party. They stay on the sidelinesduring the game. Their real role is to develop the game plan by analyzing their teamsstrengths and weaknesses. But thats not all; they also determine the competitionsstrengths and weaknesses. Every good manager has a game plan before the team evencomes out of the locker room. That plan may change as the game progresses, butmanagers pretty much know what theyre going to do if they are losing or if they arewinning.

The same is true in workplace organizations. In every organization youll find seniormanagers making long-range decisions, middle managers carrying out the plans and goalsset by senior managers, andoperational managers handling the day-to-day operations of

the company. As well see, information systems output must be geared to each of theselevels of management.

Technology

Do you own a high-definition television? Maybe not, since the technology has only beenon the market for a short time. How old is your car or truck? Manufacturers areconstantly offering us new vehicles, yet we tend to upgrade only every few years. Yourpersonal computer may be a year old or three years old. Do you have the latest gadgets?Chances are you dont. Face it, you just cant keep up with all the new hardware. Noone can.

Think about how hard, not to mention expensive, it is for an individual to acquire eachnew software program introduced to the marketplace. Think how difficult it issometimes to learn how to use every feature of all those new products.

No matter how big your computers storagedevice seems to be, youre constantlyrunning out of room to store all the new software programs and all the data you create.Speaking of data, what kind ofdata management technology do you use to organize allof your music, pictures, and word documents? As the products and services on the


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Internet expand everyday, your need for new telecommunications technology and betternetworking links just seems to grow and grow.

Now put those thoughts into a much larger context of an organizations informationtechnology (IT) infrastructure. Yes, it would be nice if your company could purchase

new computers every three months so you could have the fastest, best technology on themarket. But it cant. Not only is it expensive to buy the hardware and the software, butthe costs of installing, maintaining, updating, integrating, and training must all be takeninto account. Well look at the hardware and software sides of the information systemstriangle in upcoming chapters, but its important that you understand now how difficult itis for an organization, large or small, to take advantage of all the newest technology.

The fastest and biggest change in modern computing is the Internet. To say that theInternet is transforming the way we live, work, and play is probably the greatestunderstatement in years. Businesses can create new opportunities, but they can also loseopportunities just as quickly. Now an organization has to design new systems, or

transform old ones, with not just the company in mind, but 100 million other users of theInternet, extranets, and intranets. They have to decide how much or how littleinformation to provide, in what way, with what level of access, and how best to present it.Its a huge job!

The World Wide Web allows big companies to act small, and small companies to actbig. It has leveled the playing field so entrepreneurs can break into new marketspreviously closed to them. A Web site, consisting of a few pages or hundreds of pages,enables businesses to get close and stay close to their customers in new ways. It is truly arevolution in our global economy.

Bottom Line: Information literacy is more than just clicking a mouse, pounding thecomputer keyboard, or surfing the Web. Its about integrating the various elements

of an organization, technical and non-technical, into a successful enterprise.

Organizations, technology, and people, are integral dimensions of information

systems. The Internet has led many businesses to restructure themselves and take

advantage of extranets, intranets, and the World Wide Web distribution channels.

2.2 Components of a Business

Both information systems and businesses require inputs and some sort of processing, both

have outputs, and both depend on feedback for successful completion of the loop.

Information systems use data as their main ingredient and businesses rely on people.However, the similarities are remarkable. Both are a structured method of turning rawproducts into useful entities.


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Organizing a Business: Basic Business Functions

Whether you are a one-person show or a huge conglomerate, your business still needsfour basic functions in order to be successful. Figure 2-2 shows you these functions.

Figure 2-2: The Four Major Functions of a Business

Business Processes

Business processes integrate functions throughout an organization. Processes thatdeliver the best product for the lowest cost in the most efficient manner are imperative tosuccess.


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The way a business organizes its workflows, the method it uses to accomplish tasks, andthe way it coordinates its activities among employees, customers, and suppliersdetermines its business processes.

Businesses, from the smallest one- or two-person group to the largest you can imagine,must have orderly processes that all divisions can understand. No part of theorganization can work in isolation from any other part. Thats why a successful businessneeds information integration.

2.3 Types of Business Information Systems

2.3.1 Systems from a Functional Perspective

Each management level has a special type of information system that best serves its

needs. Each functional area of a business requires specific pieces of informationaccording to their mission. Lets begin by looking at the information systemrequirements for the four functional areas.

Sales and Marketing Systems

As both of these functions have close or direct contact with customers, they usually workhand-in-hand. The marketing mission is to identify customers and their wants and needs.Sales mission is to put the product or service into the hands of the customer. As both areso closely related, it stands to reason their information requirements are similar. Thats

why youll generally find combined sales and marketing information systems inorganizations.

Table 2.1 shows some sample sales and marketing systems and the organizational levelsthey serve. Keep in mind that some of the information used in these systems can greatlyaffect other functional areas. Sales and marketing must also gather information fromother areas of the organization. For instance, while pricing analysis may primarily be atask for sales and marketing, they must gather information from manufacturing andproduction to ensure that the cost of making the product or providing the service iscovered.


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Manufacturing and Production Systems

After sales and marketing actually sell a product or service, someone has to make it.Thats where manufacturing and production information systems come into thepicture. And there is more to these systems than just the assembly line. Someone has to

decide where the manufacturing plants will be located. Someone else has to decide howmany raw materials will be needed and then order those materials. Finally, someone willhave to make sure the product gets produced on a daily basis.

Many companies collect massive amounts of data about their products and manufacturingprocesses. In the past much of that data went unused or wasnt put into its proper context.Newer information systems take advantage of all the collected data by producing usefulinformation managers need to make intelligent decisions about the manufacturing andproduction systems.

Table 2.2 shows examples of manufacturing and production information systems needed

to make products for the organization.

Finance and Accounting Systems

Pity the company without adequate finance and accounting systems. How will theyknow how much money will be available for future expansion or even for next weekspayroll? Who makes sure the financial assets of the organization are put to the best use?When your paycheck is short $100, who will fix the error?

Table 2.3 shows the types of systems this function uses at each organizational level.

Integration of information throughout the business is most apparent in the finance andaccounting systems. They must gather data from all areas of the company. These data


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are processed through the various information systems and then disseminated back out toall the other organizational functions.

Human Resources Systems

Somebody has to hire employees with the right skills and experience and then make surethose employees are utilized to the full benefit of themselves and the organization. Howwill production even know how many employees are necessary or how many theorganization can afford to hire? What is the best ratio of managers to workers for theorganization? How can the organization find the employees to begin with? All of theseinformation needs can be fulfilled with human resources information systems.

Table 2.4 shows the systems used at each organizational level in this functional area.

Human Resources information requirements are greatly impacted by externalenvironmental forces. The government requires extensive record keeping for manydifferent programs such as Equal Employment Opportunity, retirement programs, and taxcollection. Without effective information systems, much of this information would be

too costly to provide.

2.3.2 Systems from a Constituency Perspective

As we saw in the tables in the last section, each functional area has three distinctmanagement levels: senior, middle, and operational. Each level has different informationrequirements. There are four different types of systems to help out. There are transactionprocessing systems (TPS), management information systems (MIS), decision-supportsystems (DSS), and executive support systems (ESS).

Types of Decisions

There are generally three classifications of decisions:

Unstructured: requires judgment, evaluation, and insight into non-routine situations.Usually made at senior levels of management

Structured: repetitive, routine, with definite (clear-cut) procedures for making thedecision. Usually made at the lowest organizational levels

Semistructured: A combination of the two. Usually made by middle managers.


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Transaction Processing Systems

The operational level of the organization is responsible for daily operations. Theinformation systems used in this level of the organization are transaction processing

systems (TPS), so-called because they record the routine transactions that take place ineveryday operations. TPS combine data in various ways to fulfill the hundreds ofinformation needs a company requires to be successful. The data are very detailed at thislevel.Characteristics of TPS

1. Record the routine transactions that take place in everyday operations.2. Very rich with data and the data is very detailed.3. Typically helps with structured decisions.4. Relies heavily on Data Management Technology (database technology).

You have to remember that a lot of work is required to get the product from the

manufacturing plant to the store shelves. How much did the company pay to package theproduct, store the product, and ship the candy bar to the stores? All that data can berecorded in a TPS, right down to how many truck drivers were required to deliver theproduct to the local convenience store.

The operational level of an organization also includes functions not directly associatedwith the actual production, but vital in keeping the company running smoothly. Thepeople in accounting may not be pouring the chocolate over the nuts on the assemblyline, but those workers that do appreciate the fact that they get a paycheck every twoweeks. Production workers also like to know that the human resource division is keepingtrack of training programs that may help them advance within the company. Each of

these divisions requires an information system that helps it keep track of the many detailsthat make the production worker happy and productive. The best transaction processingsystem will be integrated throughout the organization to supply useful information to

those who need it when they need it.

Note on Data Management:A typical component of a TPS is the database which represents the repository of the datacollected by the TPS. Databases are usually managed by a type of software that isreferred to as database management system (DBMS). A DMBS will control the how datais inserted, modified, and deleted from the database. It also provides capabilities likemaking sure that users can only access that data that they have access to (access control).

It also insures that many users can access the database at the same time (concurrentaccess). Moreover, a DBMS will typically insure required properties of transactions suchas atomicity (either completing he whole transaction or canceling all of it) among manyother things.

Management Information Systems and Decision-Support Systems

Think about the functions of managers that you may have learned about in other classes:directing, controlling, communicating, planning, and decision-making. Each manager


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takes on these roles countless times a day. Managers review endless amounts of datahoping to make their jobs easier and more efficient.

Those using management information systems (MIS) require information on aperiodicbasis instead of on a daily recurring basis like those using a transaction processing

system. Managers also require information on an exception basis. That is, they need toknow if production is higher or lower than the targeted rate or if they are over or undertheir budgets. They also need to know about trends instead of straight numbers. Thequestions they may ask of the system would be: How far behind in production are we forthis quarter?The MIS will draw data from the transaction processing system to help managers answerstructuredquestions such as: How much more sugar must we purchase if we increaseproduction from 5,000 bars to 7,000?

Figure 2-3: How Management Information Systems Obtain Their Data from theOrganizations TPS.

Before integrated systems, managers received periodic printed reports that gave them lotsof data, but often didnt supply information that they could use to make timely decisions.Planning was sometimes a wasted effort because the information the managers neededjust wasnt there when they needed it. If they wanted to know how many candy bars were

produced in a month, they had to wait until that one piece of information was produced ina report published at the end of the quarter. The human resources department managerwould likely not be able to find out about new job opportunities in a different part of thecompany until after the workers were laid off and had found other employment. Worseyet, production might have to stop the assembly lines because accounting hadntpurchased enough supplies to cover the increase in the number of candy bars rolling offthe line.


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With the integration of information systems up and down the management levels, andthroughout the corporation, managers can often get needed information in a real-timemode. The data are kept online, the system can gather the precise information managersneed to make a decision, and the information can be cross-integrated into all departmentsof the company. All divisions in the company can see whats going on throughout the

corporation. Information can be passed from department to department so that they are allworking on the same page.

Characteristics of MIS1. Answers structured questions2. Produces routine reports. The term routine refers to: (1) scheduled (e.g., monthly

or quarterly, but not daily like TPS), and (2) has predefined contents and format.3. Helps middle managers in monitoring and controlling their units. Monitoring

refers to the ability to see information about the performance of their units andcontrolling refers to the manager ability to correct problems by making decisionsbased on the comparing the actual performance and the desired performance.

4. MIS works typically by summarizing and aggregating the data collected by TPS.5. MIS, compared to DSS, is more general in terms of type of problems and scope ofthe organization.

Decision-support systems (DSS) also serve the management level of an organization,but in a somewhat different way from an MIS. An MIS uses internal data to supplyuseful information. A DSS uses internal data but also combines it with external data tohelp analyze various decisions management must make. Analyzing complex, interactivedecisions is the primary reason for a company to use a DSS.

Youll notice we describe decisions at this level as semistructured. Not all decisionsrequired for an organization to function smoothly are cut-and-dried. There are a lot ofgray areas in successfully managing an organization and the larger the company, themore diverse the decision-making process becomes.

As a company is affected not only by what goes on solely within the company, but alsoby external forces not under its control, decision-support systems can help upper-levelmanagement. What happens to the pricing structure and availability of the raw materialsif civil war breaks out in the sugar producing countries of Central America? Fluctuatinggasoline prices affect the profit margins by increasing or decreasing the distribution costsof the product. All these external events can be put into context in a decision-supportsystem so that management can make effective decisions.

Characteristics of DSS1. Helps managers in semi-structured decisions2. Produces ad-hoc reports (ad hoc is Latin for to this, in other words for a specific

purpose)3. Interactive. That is, there is a dialog between the manager and the DSS


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4. A DSS has analytical capabilities. For instance, it provide what-if analysis andgoal seeking analysis. An advanced DSS might even utilize data mining orartificial intelligence.

5. Relies on management science models (e.g., formulas) to help in solving thestructured part of the problem.

6. Typically, the output of a DSS is graphical. A class of DSS referred to asGeographical Information Systems (GIS) utilizes maps in producing output.7. Usually relies on external data8. Specific. DSS usually is designed to address domain-specific problems. That is,

the problems in a specific field.

Executive Support Systems

Executive support systems (ESS) are used at the very upper echelons of management.At the strategic level, the typical decision is very much unstructured. Often there is nospecific question, but rather a series of undefined situations executives may face. There

are no easy, definable answers. These executives require summarized, historicalinformation gleaned from all other levels of the organization, coupled with large amountsof external data gathered from many sources.

Figure 2-4: Model of an Executive Support System.

As executives havent been using computers that long or dont have time to fiddle aroundlearning how to type, executive support systems must be easy to use and the information


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must be easily manipulated. The ESS must be able to incorporate external informationwith internal data to offer concise, complete information for the imprecise andincomplete scenarios executives face. And most importantly, the systems must have afast response time.

Characteristics of ESS1. Helps top managers with unstructured problems2. Typically the interface is dashboard that is imbedded in a personalized web portal.3. Relies heavily on data from outside the organization along with current and

historical data from within the organizations.

2.3.4 Relationship of Systems to One Another

Figure 2.5 Interrelationships Among Systems.

Bottom Line: Each functional area of an organization has unique information

system needs at each level of management. A well-designed, well-constructed

information system will serve each functional area according to its needs. All four

system types must be integrated so that data in one system feeds all the others. No

more islands of information.


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2.4 Systems That Span the Enterprise

How do you manage all the information needs from different functional areas servingdifferent managerial requirements? Lets find out.

Enterprise Applications

No business can afford disjointed information systems that dont work together toproduce a coherent picture of the entire organization. All the functions of a businessmust be integrated across traditional lines of demarcation. Islands of information can bedevastating to a company if data cannot be shared throughout the company. Even worse,the islands of information can create problems if each faction of an enterprise hasdiffering information that conflicts with other islands of information. These kinds ofproblems are what gave rise to enterprise applications that share the same dataanywhere its needed in an organization as Figure 2-6 shows. Enterprise applicationseasily combine internal and external information to present a complete picture of the

business. As networks of all kinds take hold, from the Internet to intranets to extranets,Web-based enterprise applications are increasingly widespread.The following section is an overview of four major enterprise applications: enterprise,supply chain management, customer relationship management, and knowledgemanagement systems. Well also study each of these systems in depth in future chapters.

Enterprise Systems

Its not unusual to find an organization in which systems dont exchange informationvery well, if at all. Accounting and finance may have a system that serves their needs

very well, but they cant collect information from the system used by manufacturing andproduction. Sales and marketing is doing its own thing with its system and losingvaluable information from the other systems, which could help it do a better job. Thesesituations violate the basic business objectives of operational excellence and improveddecision making.

Enterprise systems aim to correct the problem. Also known as enterprise resourceplanning (ERP) systems, their main goal is to bridge the communication gap between alldepartments and all users of information within a company. If production entersinformation about its processes, the data are available to accounting, sales, and humanresources. If sales and marketing is planning a new advertising campaign, anyone

anywhere within the organization will have access to that information. Enterprisesystems truly allow a company to use information as a vital resource and enhance thebottom line.


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Figure 2-6: Enterprise Application Architecture

Supply Chain Management Systems

Supply chain management systems offer new opportunities for companies to address

the business objective of supplier intimacy by integrating information systems withsuppliers and customers and lowering costs for everyone. Supply chain managementsystem, a form ofinterorganizational systems (IOS), create a cohesive network forbuying the raw materials, creating the candy bars, and getting the packaged goods to theretail outlets.


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Table 2-5 lists the benefits of using a supply chain management system to get the rightproduct in the correct quantity to the right place with the least cost

While supply chain management systems have drastically improved over the last fewyears, there are still some problems associated with them. It is very difficult to integrate

systems with outside suppliers who probably have other companies to service. Somebusinesses may have dozens of suppliers with which to connect. It is very expensive andtime consuming to build and implement supply chain management systems, thereforesome suppliers will shy away from doing so.

Customer Relationship Management Systems

Do you wait for the customer to complain about your poor service before you take acritical look at your business processes? Do you spend more time and money acquiringnew customers than you do in keeping your existing ones? Does each functional area of

your organization have a completely different and separate viewpoint of your customers?Does your sales and marketing department make promises to your customers thatmanufacturing and production cant possibly keep? If you answered yes to one or moreof these questions youre in serious need of a good Customer RelationshipManagement system.

CRM technology isnt just a nice looking Web site for customers to click through ormore reports dumped on managers desks that they dont have time to review. CRMsystems involve business processes in all the functional areas and every managementlevel of a firm. The ideal CRM system provides end-to-end customer care from receiptof order through product delivery and addresses the business objective of customer

intimacy.

CRM also helps a firm cut the costs of keeping good customers by supplying the entireorganization with a consolidated view of the customers needs. Unprofitable customersare more easily identified with a CRM system, and the time and energy spent can beretargeted to more profitable customers.


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Knowledge Management Systems

Most of the other systems weve discussed have been recognized for many years, but

knowledge management systems may be thought of as relatively new. KMS systemshelp a business meet the objectives of new products and services and improved decisionmaking. In some cases a KMS may even help a business to survive.

Knowledge workers are those who promote the creation of new knowledge and integrateit into the organization. Research scientists may discover new methods of mixing sugarand cocoa beans and dairy products to make a better chocolate. Maybe a team ofengineers will develop a new method of packaging to make it easier to open. The legalknowledge workers may spend their time determining the copyright protections thatcould be afforded to the product name.

A key distinction made by the majority of knowledge management practitioners isNonaka's reformulation of Polanyi's distinction between tacit and explicit knowledge.The former is often subconscious, internalized, and the individual may or may not beaware of what he or she knows and how he or she accomplishes particular results. At theopposite end of the spectrum is conscious or explicit knowledge -- knowledge that theindividual holds explicitly and consciously in mental focus, and may communicate toothers. In the popular form of the distinction tacit knowledge is what is in our heads, andexplicit knowledge is what we have codified.

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